Third quarter gets down to business

For the dozen business-to-business merchants and computer products marketers tracked by Multichannel Merchant, the third quarter brought strong revenue and income gains. All but three of the companies saw year-over-year sales increases, while all but four marketers received a boost in their bottom lines.

“While increasing revenue, most companies were able to keep costs stable, resulting in robust bottom-line growth,” notes Stuart Rose, managing director for Wellesley Hills, MA-based Tully & Holland, which tracks the publicly traded companies for Multichannel Merchant.

Strong demand for both capital equipment and consumables drove growth in the business-to-business sector, Rose says. “Performing particularly well, Systemax achieved record quarterly results, thanks to an increase in Internet sales and higher demand for its technology products within the public sector.”

In the computer products category, the majority of direct merchants achieved high growth driven by increased demand within the commercial and public sectors, Rose says. A number of marketers “capitalized on favorable market conditions by expanding into new geographical areas or acquiring companies to expand their product offerings.”

Direct marketers with an international presence were affected by larger than average foreign exchange fluctuations, Rose adds. But only one company, Transcat, recorded significant losses in connection with foreign exchange.

Up and down quarter at Tessco

Quarter ended: Sept. 30 The facts: Sales at Hunt Valley, MD-based Tessco Technologies, a provider of wireless communications products and services, rose 12%, to $132.5 million, up from $118.6 million. But net income tumbled 61%, to $716,000, compared with $1.8 million for the same period in 2006. As Tessco grew its mobile devices and accessories segment, it felt pricing pressure by large commercial customers such as AT&T and Nokia, Rose says. As a result, gross margins decreased 4.5% year-over-year. Tessco also increased operating expenses to support its sales growth. The result: a 61% decrease in net income. The skinny: Rose says the company hopes to shield itself from future pricing pressure by diversifying both its product line and its customer base. But, he notes, “with the market slowing down, expect Tessco’s pricing problem to continue.”

Serious increases for MSC Industrial

Quarter ended: Sept. 1 The facts: Sales at maintenance repair and operations (MRO) supplier MSC Industrial Direct rose 17%, to $450.5 million, up from $385.8 million. For the three months ended Sept. 1, the Melville, NY-based merchant recorded net income of $47.4 million — an increase of nearly 40% over the same quarter in 2006. “Like Tessco, MSC Industrial Direct saw sales grow, thanks in part to large account customers,” Rose says. The company also overcame pricing pressures by controlling costs and focusing on efficient sales channels. The skinny: MSC Industrial Direct’s cost-cutting measures include a concerted effort to promote the company’s Website, which now accounts for more than 25% of its sales.

Sales and profits slide at Black Box

Quarter ended: Sept. 29 The facts: Sales for networking products marketer Black Box Corp. slipped 4%, to $260.6 million, and net income slid 3%, to $11.3 million. Why is Black Box struggling? The merchant has acquired five companies in the past two years, Rose says, but it attributed its top-line erosion to post-merger customer attrition. Black Box also faced price increases, he adds, “which resulted in declining margins across all segments.” Despite this, Rose says, “the company continues to reduce SG&A and seems well positioned to rebound from a sub-par quarter.” The skinny: Positive growth in European markets is an encouraging sign as Lawrence, PA-based Black Box continues to expand outside of the U.S., Rose says.

REVENUE NET INCOME (LOSS)
Company 12 months prior Current quarter Increase (decrease) 12 months prior Current quarter Increase (decrease)
($000) ($000)
Black Box Corp. 271,325 260,630 (4%) 11,675 11,310 (3%)
Deluxe Corp. 398,100 388,600 (2%) 31,200 32,200 3%
Henry Schein 1,246,553 1,505,575 21% 39,285 59,573 52%
MSC Industrial 385,869 450,499 17% 34,107 47,362 39%
PC Connection 415,213 456,470 10% 4,388 7,685 75%
PC Mall 242,171 287,688 19% 1,908 2,978 56%
Sport Supply Group 68,163 70,374 3% 3,295 4,096 24%
Systemax 575,041 687,317 20% 12,451 17,644 42%
Tessco Technologies 118,656 132,518 12% 1,856 716 (61%)
Transcat 14,860 16,625 12% 246 194 (21%)
Wayside Technology 48,679 41,790 (14%) 859 822 (4%)
Zones 137,900 162,970 18% 2,080 2,611 26%
Source: Tully & Holland

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